IMF reaches staff-level deal with Pakistan to unlock $1.3 billion of new cash

By Kanishka Singh and Ariba Shahid

WASHINGTON/KARACHI (Reuters) -International Monetary Fund staff reached a deal with Pakistan for a new $1.3 billion arrangement and also agreed on the first review of the ongoing 37-month bailout program, the IMF said on Tuesday.

Pending board approval, Pakistan can unlock the $1.3 billion under a new climate resilience loan program spanning 28 months.

It will also free $1 billion for the South Asian nation under its $7 billion bailout program, which would bring those disbursements to $2 billion.

The program, secured mid-year in 2024, has played a key role in stabilizing Pakistan's economy and the government has said the country is on course for a long-term recovery.

"Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment," the IMF said in a statement.

"Upon approval (by the IMF board), Pakistan will have access to about $1 billion under the EFF, bringing total disbursements under the program to about $2 billion," the IMF said.

Pakistan's inflation is likely to remain steady in March, in the 1% to 1.5% range, the country's finance ministry said in its monthly economic outlook, after slowing to its lowest level in almost a decade the previous month.

Inflation in Pakistan has been declining for several months, hitting 1.5% in February, after it soared to around 40% in May 2023.

Pakistan says its $350 billion economy has stabilized under a $7 billion IMF bailout that had helped it stave off a default threat.

"While economic growth remains moderate, inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger," the IMF said about Pakistan.

Islamabad had been awaiting the IMF agreement on the first review of the bailout and disbursement of $1 billion ahead of the country's annual budget, usually presented in June.

The IMF statement also noted what it called elevated downside risks such as geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism.

It said such risks could undermine Pakistan's "hard-won macroeconomic stability."

(Reporting by Kanishka Singh, Ariba Shahid, Ismail Shakil and Rodrigo Campos; Editing by Bill Berkrot and Chris Reese)